By William Launder and Ben Fox Rubin
TV broadcaster Media General Inc. agreed to buy LIN Media LLC
for $1.6 billion in cash and stock, a sign that heightened
regulatory scrutiny of TV-station business arrangements isn't
deterring industry consolidation.
Friday's deal is the latest in a string of broadcast-company
acquisitions totaling $11.4 billion in 2013 alone, according to SNL
Kagan. It more than doubles Media General's station count to 74.
The result is the second biggest pure-play broadcast company
reaching 23% of U.S. television households, after Sinclair
Broadcast Group.
The deal is Media General's second in less than a year: last
November the Richmond, Va.-based company completed the acquisition
of New Young Broadcasting, increasing its station ownership to 31
from 18.
With its latest takeover, Media General is swallowing a company
with a much larger market capitalization; LIN Chief Executive Vince
Sadusky will run the combined business.
The rapid pace of acquisitions in the TV-station industry in the
past couple of years reflects a push for higher fees from cable and
satellite operators for the right to carry station signals.
Increased size gives station owners more leverage to negotiate
higher fees from cable and satellite operators, executives say.
Station owners also hope to get more bargaining power with content
providers.
"We are operating in a media world that is largely
consolidated," Mr. Sadusky told investors on a conference call
Friday, saying an increasingly small "handful" of companies,
including studios and networks, dominate the industry.
Mr. Sadusky said the combination of Media General and LIN would
present opportunities for "incremental leverage" in negotiations
with pay-TV operators, helping close what he described as a
"tremendous gap" between the fees the company receives and its
stations' viewership.
Regulators have been taking a closer look at one aspect of
broadcast acquisitions: the use of agreements between TV-station
owners in the same market to share services in areas like ad sales.
While these agreements have been in use for years, critics of
consolidation have questioned whether they are being used to
circumvent station ownership rules. Scrutiny of such arrangements
have already complicated completion of other recent deals in the
broadcast industry. The Justice Department sued to block one such
agreement tied to Gannett Co.'s $1.5 billion purchase of Belo Corp.
last year. Proposed Federal Communications Commission rules could
require the arrangements to be curtailed.
LIN has some of these arrangements with certain stations, which
executives acknowledged would be reviewed by regulators. The
companies also will be required to shed stations in five
markets--Savannah, Ga.; Mobile and Birmingham, Ala.; Green Bay,
Wis.; and LIN's hometown of Providence, R.I.--where they both own
stations and would otherwise risk violating an FCC prohibition of
direct ownership of more than one station in a local market.
George Mahoney, Media General's CEO, dismissed one analyst's
suggestion that Media General and LIN would be pressured to sell
the stations on the cheap to comply with the FCC rules. "These do
not go out at fire-sale prices," he said, noting that the companies
have already received requests from potential buyers. "Our emails
have already been lighting up this morning." The companies didn't
say what role Mr. Mahoney will have after the deal closes.
Mr. Sadusky said the regulatory scrutiny didn't change the
strategic rationale for getting bigger. "The overall operation of
those TV stations from a scale perspective is more critical than
ever," he told investors.
The regulatory crackdown "hasn't stopping the deal making, but
it is complicating things," said Larry Patrick, managing partner of
Patrick Communications, an adviser to local station groups. Mr.
Patrick estimated the consolidation push is in its "sixth or
seventh inning," leaving room for smaller acquisitions.
Under the terms of the deal, LIN shareholders will receive cash
and stock worth about $27.82 for each of their shares, leaving them
with about 36% of the combined company. LIN shares rose 22% to
$26.32 in Nasdaq trading on Friday.
The deal comes nearly two years after Media General sold the
bulk of its newspaper holdings to a subsidiary of Berkshire
Hathaway Inc., making Media General a broadcast- and
digital-media-focused company. At the time of the deal, Media
General separately arranged a loan from Berkshire to help it pay
down debt. Today, Berkshire owns around 5% of the company.
Write to William Launder at william.launder@wsj.com and Ben Fox
Rubin at ben.rubin@wsj.com
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